2. Best Boards produces wakeboards. Recently, Jim Muller, vice president of operations, received a bid for from an outside manufacturer who offered to produce the boards for a cost of $80 each.

Best Boards president asked the companys accountant, Amy Eckstrom, to investigate whether it makes sense for Best Boards to hire an outside company to produce the wakeboards. The following data has been gathered for analysis.

	Make in house	Buy from outside
Variable costs
Cost to buy from outside	-	$80 per unit
Direct materials	$30 per unit	-
Direct labor	$16 per unit	-
Manufacturing overhead	$10 per unit	-
Fixed costs (annual)
Factory equipment lease	$110,000	$100,000 i
Factory building rent	$290,000	$290,000 ii
Production supervisors salaries	$140,000	$90,000 iii
Sales Revenue	$350 per unit	$350 per unit

i The factory equipment lease will continue for several years whether Best Boards makes or buys the wakeboards.

ii The factory building lease covers several years, so this cost will continue whether Best Boards makes or buys the wakeboards.

iii One supervisor must be paid $90,000 per year even if the company buys the product. The other supervisor, who is paid $50,000 per year, can be let go if the company buys the product.

a. Use the data given to create a profit model for each option (Make or Buy).

b. Use the Excel tool Data/What-If Analysis/Goal Seek to find the break-even quantity for each option.

c. Create a cost-volume graph that shows the annual total cost for each option over a volume range of 0 to 5,000 units. (Your graph should look something like the one on textbook pg. 12 except you will have two cost lines instead of a cost line and a revenue line).

d. Use your graph to approximately determine at what volume the Make and Buy Options have the same total cost.